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BlackBerry CEO questions tablets’ future

‘In five years, I don’t think there’ll be a reason to have a tablet,’ Thorsten Heins says.

By Hugo MillerBloomberg

Tues., April 30, 2013

BlackBerry chief executive officer Thorsten Heins said he sees a limited future for tablet computers, an indication he may shelve plans to build a follow- up to the smartphone maker’s ill-fated PlayBook device.

“In five years I don’t think there’ll be a reason to have a tablet anymore,” Heins said in an interview yesterday at the Milken Institute conference in Los Angeles. “Maybe a big screen in your workspace, but not a tablet as such. Tablets themselves are not a good business model.”

While Heins pushes ahead with fresh smartphones built on the new BlackBerry 10 platform to engineer a sales recovery, he’s rethinking whether to offer larger devices. The PlayBook, introduced in 2011, was panned by critics for debuting without built-in e-mail, delivering the tablet a near-fatal blow. Waterloo, Ont.-based BlackBerry took a $485 million charge later that year to write down unsold inventory after shipping as few as 150,000 PlayBooks in the third quarter of 2012.

Heins said in a January interview he’ll only consider a PlayBook successor if it can be profitable. He reiterated yesterday that a BlackBerry tablet has to offer a unique proposition in a crowded market.

“In five years, I see BlackBerry to be the absolute leader in mobile computing — that’s what we’re aiming for,” Heins said. “I want to gain as much market share as I can, but not by being a copycat.”

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In a separate interview with Bloomberg Television yesterday, Heins said he was optimistic about prospects for BlackBerry’s new Q10 phone, which sports a physical keyboard. It debuted over the weekend in the U.K.

“We have very, very good first signs already after the launch in the U.K.,” Heins said. “This is going into the installed base of more than 70 million BlackBerry users, so we have quite some expectations. We expect several tens of million of units.”.

The company is counting on a wave of upgrade buying from BlackBerry users who prefer a physical keyboard to drive Q10 sales and help revive revenue growth. While the touch-screen Z10 sold a million units in its first quarter that ended March 2, in line with analyst estimates, the company’s stock has experienced volatility in recent weeks following reports of lackluster demand for the Z10.

Department store Selfridges and outlets of Carphone Warehouse Group Plc sold out of the Q10 quickly, Peter Misek, an analyst at Jefferies Group LLC in New York, wrote in a note yesterday.

“Salespeople were well-versed on the device, and there was more apparent buzz versus the Z10 launch,” Misek said.

BlackBerry said April 12 it would ask securities regulators to investigate a report from Detwiler Fenton & Co. that its new phones have high return rates, saying that the “false” information may have been released in a deliberate attempt to manipulate its stock price.

“Whatever the motivation is, you have to use the right facts, and that’s what we’re challenging right now,” Heins said, referring to the company’s request for both the U.S. Securities and Exchange Commission and the Ontario Securities Commission to review the report.

Data from BlackBerry and one of its U.S. carrier partners Verizon Wireless show that Z10 returns are “completely in line” with the industry and “better than previous BlackBerry launches were, so the quality speaks for itself,” Heins said.

In a separate report last week, Wedge Partners said BlackBerry is probably scaling back Z10 production.

Misek, who has a buy rating on BlackBerry shares, said he saw no sign of Z10 manufacturing cuts and that “Z10 sales in Canada, the U.S. and U.K. remain steady with no inventory or return issues.”

The Q10, set to go on sale in the U.S. at the end of May, will sell through the four largest U.S. carriers for about $249 (U.S.) on a two-year contract. While that’s $50 more than Apple Inc.’s iPhone 5, it’s part of a strategy to target business users willing to pay more for a phone they think will boost their productivity, according to analysts including Anil Doradla at William Blair & Co. in Chicago.

The company, formerly known as Research In Motion Ltd., has steadily lost ground over the past three years to Apple and Samsung Electronics Co., which offered more compelling touch- screen devices. Samsung accounted for one-third of smartphone sales last quarter, while Apple had 17 percent, according to IDC. BlackBerry’s share fell to 3.2 percent in the fourth quarter and then dropped out of the top five in the first three months of this year.

Heins has said he is exploring the potential licensing of the BlackBerry 10 operating system to other companies.

A successful introduction of the new phones will “create a certain attraction toward BlackBerry 10, and then whatever comes up, we will entertain any valuable discussion for the company,” Heins said yesterday. “We are still observing and watching that space, and that’s what we will continue to do.”

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